FX market to remain stable in the aftermath of foreign investors’ exit

Oluwaseun Afolabi is Businessamlive Reporter.
You can contact him on afolabi.oluwaseun@businessamlive.com with stories and commentary.

August 6, 2018868 views0 comments

The Nigerian foreign exchange market is projected to remain stable if foreign investors finally exit the market as has been projected on rising rates in the advanced economies, especially in the United States.

Currency market analysts, who spoke to business a.m. said the foreign exchange market would be unshaken, particularly in the short to medium term, by the exit of foreign portfolio investors.

The assumptions behind their forecast are high oil prices and stable production, which they see would help to shore up the nation’s foreign reserves to keep the market liquid enough to contain rates.

The Nigerian financial markets have been forecast to experience capital out flows owing to election risk and rising rates in the advanced economies, which analysts claimed remain a potential headwind to the already declining foreign reserves.

A review of the market in the week ended 3rd August 2018 showed the naira remained relatively stable at the parallel market in Lagos as the Nigerian currency closed the week trading at N360 to the dollar.

The naira on Friday strengthened marginally to N359 per dollar, N479 per pound and N417 to the euro. While the dollar and euro have closed the week at N360 and N418 respectively, the pound sterling dropped even further to close the week at N478

A cross-section survey of street markets in Ikeja showed very similar trend as the dollar traded at N360 per dollar and the pound sterling traded at N478, while the Euro traded at N418.

Around the Lagos Airport Hotel axis on Obafemi Awolowo Way, Ikeja, the dollar was sold at N360, and the pound at N479. The value of the naira against the euro was between N417 and N418.

At the car park of the international wing of the Muritala Mohammed Airport, the price the dollar closed at N360, British pounds sterling closed trading at N478 after starting the day at N479, while the Euros at N418.

At the Bureau De Change (BDC) window, the naira dropped marginally to trade at N360 to the dollar and was bought at N356, the Pound Sterling at N479, while the euro closed at N417 as traders bought the pounds at N468 and the euro at N410.

At the I&E FX window, the naira trade at N362.28, dropping by 0.11 percent in the week ended August 3.

Meanwhile, steady intervention by the CBN at the FX market has depleted foreign reserves significantly.

Data from the CBN shows reserves decreased further by $175.79 million to $47.07 billion, against last week’s close of $47.25 billion. Total turnover in the IEW dropped by 39.29 percent to $487.55 million, with 99.82 percent of trades consummated within the range of N360-N369 per dollar.

At the fixed income market, the overnight lending rate contracted by 192 basis points week-on-week to close at 5.33 percent on the back of buoyant system liquidity, as inflows from the monthly FAAC disbursement N361.74 billion, matured OMO bills N379.45 billion and outweighed outflows from OMO sales of N362.96 billion.

An overview of O/N rates in the month of July showed the overnight lending rate fell by 450 basis point, as analyst predicts even further contraction in August’s overnight rate, following anticipated buoyant liquidity position from inflows from maturing OMO bills N1.90 trillion, bond coupon payments N62.15 billion, as well as the budgetary allocations estimated to be N360 billion to state and local governments.

Data from the CBN shows reserves decreased further by $175.79 million to $47.07 billion, against last week’s close of $47.25 billion. Total turnover in the IEW dropped by 39.29 percent to $487.55 million, with 99.82 percent of trades consummated within the range of N360-N369 per dollar.

At the fixed income market, the overnight lending rate contracted by 192 basis points week-on-week to close at 5.33 percent on the back of buoyant system liquidity, as inflows from the monthly FAAC disbursement N361.74 billion, matured OMO bills N379.45 billion and outweighed outflows from OMO sales of N362.96 billion.

An overview of O/N rates in the month of July showed the overnight lending rate fell by 450 basis point, as analyst predicts even further contraction in August’s overnight rate, following anticipated buoyant liquidity position from inflows from maturing OMO bills N1.90 trillion, bond coupon payments N62.15 billion, as well as the budgetary allocations estimated to be N360 billion to state and local governments.